Mitusbishi UFJ Injects $9 B in Morgan Stanley

123jump.com Staff
13 Oct, 2008
New York City

Mitsubishi UFJ completed its purchase of 21% stake in Morgan Stanley after lowering the conversion price of the convertible stock to $25.25. The stock pays 10% dividend. It is not clear if Mitsubishi UFJ will be given shares if Morgan Stanley stock falls further or raises capital at a lower price.

[R]11:00 AM – Mitsubishi UFJ completed the $9 billion investment in Morgan Stanley that takes 21% in the troubled bank under the revised terms. Morgan Stanley stock has fallen 60% last week.[/R]

Morgan Stanley after dropping significantly last week managed to close its deal with Mitsubishi UFJ under the revised terms. The troubled broker and recently converted bank raised $9 billion from the Japanese bank and sold 21% of the company.

MUFG will acquire $7.8 billion of preferred stock and a conversion price $25.25 a share and $1.2 billion of non-cumulative non-convertible preferred stock. Both classes of stocks pay a dividend of 10%. However, it is not clear if the deal terms include a provision for more stocks if stock price continues to decline further or if Morgan Stanley declares more losses.

The earlier deal terms had set the price of conversion at $31 a share before the recent stock price slide of 60% in the last week. With the threat of rating agency downgrade and stock trading at 62% discount to the initial deal terms, Morgan Stanley was forced to revise the terms of conversion price.

Of the convertible stocks, half of the stock converts to common stock when it trades above 150% of the conversion price for a given period and the other half converts after the year two. The non-convertible preferred stock is callable after year three at 110% of the purchase price. However, both banks did not specify the purchase price of the non-convertible stock.

The Tier 1 Capital Ratio of Morgan Stanley jumps to 15.5% at the end of August considering the deal completed today. The investment reduces Morgan Stanley’s leverage ratio below 20 and ‘adjusted leverage ratio’ to below 10. At the end of third quarter ending in September, Morgan Stanley has reduced its total asst on the balance sheet to $900 billion from $987 billion at the end of August.

China Investment Corp took a stake in a company, when fully converted, will be 10% in 2010 and pays 9% dividend. However, the recent rating agencies worries only highlight the tough road ahead for Morgan Stanley. Morgan Stanley may need additional $7 billion in the next one year if the housing market drops another 5% across the nation, according to the latest estimate of 123jump.com. Morgan may also need to lower its assets below $750 billion in the next one year.

Morgan Stanley ((MS)), the second most active stock in New York trading jumped 41% or $3.98 to $13.66 and Mitsubishi UFJ ((MTU)) surged 9% or 60 cents to $7.25.

Asian Markets Review

Hang Seng index in Hong Kong increased 1,515.29 or 10.24% closed to 16,312.16. CSI 300 index in China higher 78.53 or 4.12% closed to 1,985.49. ASX 200 index in Australia increased 220.00 or 5.55% to close 4,180.70. The KL Composite index in Malaysia higher 16.75 or 1.79% closed to 950.76. Market of Tokyo was closed today.

The Kospi Index in South Korea increased 47.06 or 3.79% to close at 1,288.53. SET index in Thailand closed higher 24.37 or 5.39% to 476.33, and JSE Index in Indonesia increased 10.20 or 0.70% to 1,461.87. The Sensex index in India increased 804.38 or 7.64% closed to 11,332.23.

Europe Markets Review

In London FTSE 100 Index traded higher 181.05 or 4.60% to 4,113.11, in Paris CAC 40 Index increased 190.52 or 6.00% to 3,367.01 and in Frankfurt DAX index traded higher 299.99 or 6.60% to 4,844.30. In Zurich trading SMI increased 332.39 or 6.22% to 5,679.61.